Do You Need a Will or a Trust, or Both?
By: Attorney Carissa M. Giebel
Whether you need a will, a trust, or both, is not necessarily dependant on how many assets you own, but more so based on your estate planning goals. I will give you a basic overview on what each does and some of the benefits.
A will is a legal document indicating how you want your assets distributed upon your death. It is also used to nominate guardians for minor children and to name a personal representative to act for you. After death, the personal representative files the will with the probate court. The public process, called probate, involves giving notice to creditors, paying any creditors, taxes, or professional fees, and then distributing your assets to the beneficiaries. With a will, assets are usually distributed to the beneficiaries outright, meaning the beneficiaries receive the distributions as lump sum. However, if the beneficiary is a minor, the court would place the inheritance into a custodial trust until the child is no longer a minor, at which time the remainder would be paid out in a lump sum.
Sometimes a will can provide for a testamentary trust to be created upon death. If the judge determines the creation of the trust would be efficient, this trust will provide some protection for the beneficiaries. This prevents the beneficiaries from receiving a lump sum all at once. Instead, the assets would be managed for the beneficiaries' protection over an extended period of time. For example, if a child is inheriting, he or she may receive one-half at age 21 and one-half at age 25. These trusts remain under court supervision until termination.
A living trust is created during lifetime and avoids probate and court entirely if set up properly. These trusts can provide asset protection for beneficiaries for their lifetime, legitimate tax avoidance, and enhanced privacy. Living trusts provide the flexibility to leave detailed instructions to beneficiaries so you can leave what you want, to who you want, when you want, the way you want. Beneficiaries can be given as much or as little control over their inheritance as you choose, all while protecting their inheritance from a potential divorce and creditors. A living trust can also be set up so a larger portion of your estate can be passed on estate-tax free to beneficiaries. Whenever a trust is done, a will is also done, called a pour-over will. This will is used to make sure all the assets end up in the trust after death.
If no estate planning is done, assets are distributed according to the laws of intestacy, which means state law determines who gets the property. The court determines who will be in charge of the distributions, and if minor children are involved, the court also chooses guardians for the children. This situation is not ideal because the judge makes all the decisions, rather than you.
As you can see, it's important that everyone does estate planning. Discuss your goals with a professional to determine what type of planning is necessary for your family. It will save your loved ones a lot of headache, time, and money in the long run.